Tax Benefits Taken Under 80C Will Be Reversed If House Bought On Loan Is Sold Within 5 Years

I purchased a flat in December 2020 through a home loan from the State Bank of India (SBI). I have been availing the income tax benefits for repayment of loan and interest. Now I want to sell this flat and buy a bigger apartment. In such a case, will I have to return the tax benefits that I availed of from December 2020 to till date? What will be the other tax implications of this transaction?  

Answer: According to Section 80C of the Income-tax Act, 1961, if you sell a house, purchased with home loan within five years from the end of the year in which it was so purchased, all the tax benefits you have availed of in respect of repayment of such home loan under Section 80C will be reversed and shall become taxable in the year in which you sell the flat.  

In your case, the amount of principal repayment claimed under Section 80C shall become taxable this year. Do note that there is no similar provision for levying tax in respect of tax benefits claimed on the interest on home loan under Section 24b. So, any tax benefit claimed by you under Section 24(b) in respect of interest payment on the home loan shall not be reversed now.

Since you will sell this flat after completing 24 month, any profits made on the sale shall be treated as long-term capital gains (LTCG). Since you are planning to buy a new house, you can take benefit of Section 54 and not pay tax on such LTCG if your investment in the new house is equal to or more than such indexed LTCG. In case the investment is lower than the indexed LTCG, the benefit will be available proportionately.

Can I claim leave travel allowance (LTA) for two consecutive years e.g. 2023 and 2024? Is there any specific rule for travel to hometown to claim LTA?  

Answer: As far as exemption in respect of LTA is concerned, there is no specific provisions as regards requirement to travel to your home town. The journey can be undertaken to any place in India and not necessarily to your hometown. You can claim LTA in respect of two journeys in a block of four years. The current block of four years is 2022-2025.  

So, though both these years 2023 and 2024 fall in the same block, you can still claim the exemption for both these consecutive years. Even both the journeys can be undertaken in single year.  

Do note that the LTA benefit can only be claimed for journey undertaken to any place within India. So, in respect of travels outside India, you can claim the travel expenses only for travel up to the airport from where you embark on your foreign journey. 

I am planning to apply for home loan. I have a personal loan running from another bank, which I do not want to disclose in my home loan application. If I disclose it, I will not be eligible for my home loan. Is there any way by which the bank, where I am applying for the home loan, will know about my running personal loan and reject my home loan application?

Answer: It is always advisable to let your home loan lender know about all your existing liabilities even though this may reduce your home loan eligibility. Also note that banks have access to all your existing loans through your credit report, which the bank will eventually access while processing your home loan application. Not disclosing the existence of a running personal loan may go against you. 

If you are not eligible for the desired loan amount, you can always take a joint loan with your parents or spouse, if they have a stable income, as co-borrower.  

Balwant Jain is a tax and investment expert

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